Common 401(k) Questions

Cannon Capital Management, Inc. has been working with retirement plans for over 10 years. So, you could imagine that we have heard a fair amount of questions. They have ranged from “How do I become a millionaire?” to “What are the eligibility requirements to enroll?” and everything in between. We know 401(k) plans can seem complicated, and vary from plan to plan, but we are here to help answer all your 401(k) related questions. This month, we thought it would be useful to compile the five most frequently asked broad questions and address each one for you.

1. How much money should I put into my 401k plan each year?

This is the most common asked question we get when we do enrollment and group education meetings. This is going to vary for each person because everyone has a different time frame and age at which they want to or can retire. The following table is based on how many years you have until your planned or desired retirement date and the corresponding savings rate.

Years Until Retirement

Savings Rate (as % of Gross Pay)

30 - 40+ Years

10 - 13%

20 - 30 Years

13 - 20%

10 - 20 Years

20 - 40%

5 - 10 Years

40 - 120%*

* Would need to push retirement to a later date to accomplish goal

2. Can I save on my taxes by contributing to my 401(k) plan?

The answer is yes! According to TaxAct in 2018 a single person earning $50,000 per year pays $6,940 in federal income tax, or 13.88% of income. By contributing 10% to your 401k plan on a pre-tax basis, your taxable income is reduced by your contribution of $5,000. In this example, by simply saving for retirement, you save $1,100 per year in federal income taxes and have saved $5,000 for retirement.

3. How much money can I put into my 401k?

The maximum amount is set by law and then adjusted annually for inflation. For 2018, the maximum amount a participant can contribute is $18,500. The law also allows for those that are 50 and older to contribute an extra $6,000 per year, called a catch-up contribution.

4. How much money will Social Security provide?

Really, the question is more like, “Will Social Security be around when I retire and if so, how much will I get?” We believe that Social Security will be around for everyone, in what form and fashion is anyone’s guess, but we do believe you will receive it. The Social Security Administration does have several calculators on their website www.SSA.gov that you can use. Also, it is a good idea to create your account and login to get your actual estimated benefit directly from them.

5. How should I invest my 401k account?

This is a great question and one that can have a big impact on your retirement. When making investment decisions, you should carefully consider your unique circumstances, retirement income objectives, investment fees, and risk tolerance. A well-diversified and properly asset-allocated portfolio can help reduce risk and position investors for more favorable outcomes. This is why we have put together the Advisor Select investment options for your plan. These are well diversified between domestic stocks (US), international stocks, real estate, and bonds. They are aimed at keeping investment expenses low to produce consistent rates of return according to your risk profile.

If you have any other questions, please do not hesitate to reach out (801) 566-3190 or chace@cannoncap.com, we are here to help you understand your retirement plan so you can achieve your retirement dreams.